Artificial shortages | A myth … against a background of truth

PS5 nowhere to be found, computers and cars that are long in coming, worryingly declining stocks of maple syrup… Each threat of shortage brings up the big question: could it be that certain manufacturers are deliberately causing a scarcity of their products? No, answer without hesitation four experts consulted by Press. But there are many other methods to manipulate the consumer and change the rules of the free market … Explanations.

3

Number of factories in the world capable of producing the most advanced semiconductors, namely Taiwan Semiconductor Manufacturing Company (TSMC) in Taiwan, Intel in the United States and Samsung in South Korea. They are all facing a marked increase in demand and are having to contend with supply problems due to COVID-19, which explains the shortage affecting phones, computers and automobiles, among others. “This is clearly not a shortage created from scratch,” said David Dupuis, responsible for the bachelor’s degree in economics at the University of Sherbrooke.

381 billion US

Estimated global market for semiconductor-based chips, according to ResearchAndMarkets. It is expected to be US $ 553 billion in 2026 thanks to annual growth of 7.8%.

Implausible in food

None of the four experts interviewed by Press did not confirm the myth of artificial shortages that a company would impose by marketing or to inflate its prices. In food, that would be implausible, believes Sylvain Charlebois, director of the Laboratory of Analytical Sciences in Agri-food at Dalhousie University. “I’m a little skeptical, I’ve never seen this. I don’t think the grocers are on purpose to have empty shelves […] It’s a high volume environment with a tight profit margin. In a grocery store, there are 18,000, 20,000, 30,000 products competing. It would be really ridiculous to see a company follow such a strategy. “

In a competitive market, “there is no interest for a company to place itself in this position. [de pénurie provoquée], says David Dupuis. It is only going to have its market share eaten up. “

Monopolies

In practice, there is only one way to create an artificial shortage without suffering the negative consequences: to have a monopoly. And in developed countries, the only ones that are legal are state and subject to restrictive regulations, aimed precisely at avoiding shortages.

Professor Philip Merrigan, from the Department of Economics of the School of Management Sciences of the University of Quebec in Montreal (UQAM), however brings a nuance in a field he knows well: professional sport, and more especially baseball. Little known, Major League Baseball in the United States has been exempt from antitrust laws since 1922. “We control the places where there are teams and where it is clear that it would be profitable, and it is done artificially,” he notes.

For the rest of the economy, there are no such privileges. “Otherwise, you have to come to an agreement between manufacturers to create these shortages and increase prices,” says Merrigan. When we collude, we become like a monopoly. “

From 350 to 500 million

Estimated cost by Press in 2013 of the collusion that prevailed in Montreal for public construction contracts, mainly between 2004 and 2009.

Batteries and Oil

International electronics giants including Samsung, Sony and Panasonic have pleaded guilty to plotting in the late 2000s to inflate lithium-ion battery prices.

The most important known cartel is obviously the Organization of the Petroleum Exporting Countries (OPEC), which fluctuates the production of its 13 member countries and its 10 allies to control prices.

“If OPEC operated on a Canadian scale, it would be illegal, but the problem is that it is done on a scale which escapes our laws”, explains Pierre Larouche, professor of law and expert in competition law at the ‘Montreal university.

Check the faucet

There is another form of market control that translates into higher prices for consumers: supply management. Whether it is for milk, eggs, poultry or maple syrup, in Quebec, the terms vary enormously, but these examples all constitute interventions in a market that is not free. “For maple syrup, for example, we manage the quantities produced and we build up fairly considerable reserves,” explains Pierre Larouche. It is also to protect producers, to ensure that the quantity is constant even if the harvest may vary. Once we have that, of course, there is a strong temptation to keep prices at a level that is satisfactory for producers. ”

The primary goal here is not the profit of the producers, but the protection of the local food industry. “It is an insurance that we pay ourselves, estimates David Dupuis. We have to be able to maintain our supply when the agricultural sector varies enormously. ”

11,300

Number of maple syrup producers in Quebec in 2020, grouped into 7,031 companies. They produced 175 million pounds, or 73% of world production. On November 29, it was announced that nearly half of the “strategic reserve”, or 50 million pounds, would be used up to meet global demand.

Apple, a monopoly?

So, with the exception of the few examples cited above, would the Quebec consumer live in a free market as described in economics textbooks? Not quite, believes Pierre Larouche. First, there is what is called “product differentiation” which allows a manufacturer to have a semblance of a monopoly, but on its own products, which is completely legal. “Apple is a master of this. Like many manufacturers, we try to create a certain separation with the products of the competition so that they are not completely interchangeable. ”

There are many examples of this strategy that lead to essentially the same result: to convince consumers to pay a little more. “Is there such a big difference between a Big Mac, a Whopper and a Teen Burger? No, says David Dupuis. The idea is to generate a brand effect, identifying with a brand that will allow me to find the price that a monopoly would obtain. ”

2703 billion US

Market value, as of 1^er December 2021, from Apple. Microsoft follows in second position with US $ 2,497 billion.

Unsaid and economy

The other important nuance is that most companies in the same industry keep tabs on each other, even if they are not formal cartels. “In the case of Apple, we do not necessarily communicate with others, but we have the necessary resources to fully understand our market and maneuver accordingly,” explains Pierre Larouche. Look at Bell, Rogers and Telus: they don’t talk to each other, that would be blatant, but everyone knows each other well, looks at each other and does the same. ”

This informal communication goes very far, to the point of influencing inflation, recalls the professor from the University of Montreal. “There is an important psychological component to inflation, this is one of the lessons of the 1970s. When people expect there to be inflation, for prices to go up, producers are not stupid: they raise their prices. ”